Commercial Mortgages

A commercial real estate loan (also known as a commercial mortgage) is very different than a traditional home mortgage; so don’t be intimidated by the overly lengthy name.  The most significant differences between commercial and personal mortgages exist in the due diligence process. An appraisal for a commercial building will cost around $3,500 while a residential appraisal is around $500. You will also be required to order an environmental report that can be around $2,000. Your title work and fees will also be significantly higher than a personal mortgage. This all becomes your expense when purchasing commercial real estate.

It may be helpful to know about some of the qualifications that lenders look at when deciding whether or not to grant a commercial loan.  Lenders are most concerned with a business’ free cash flow because it is this cash flow that can be used by businesses to repay the loan.  To discover whether a potential borrower has enough cash on hand to repay the loan, lending institutions will consider several criteria including credit scores, debt-to-income, and loan-to-value ratios.  It is important to present a free cash flow ratio of 1.25 or greater. This will instill the confidence you need your lender to have.

Before going to a lender to request a commercial loan, it is best to make sure that your business looks as creditworthy as possible.  You can make sure that the criteria mentioned above reflect that your business can repay its debts. Lenders will hear your story when you are well prepared. Once you have your banker’s ear, be open and honest with them about your objectives and the property. Hiding details from the banker will just waste each of your time.

Related Posts

Comments are closed.

business loan clients